Social Security, can you count on it?
"68% of retiress may be in for a huge Social Security Shock."
"Who's ready for a 24% cut to Social Security benefits?"
"5 Clues that Trump may cut Social Security if re-elected."
Do any of these newspaper headlines resonate with you?
Maximizing Social Security is the very first place I start when I work out a Retirement Income Strategy for my clients.
It's inflation adjusted.
It's backed by the US Government.
It is by far the best (in my opinion) financial product you can "buy".
But, before I even get started explaining any of the previous bullet points, I often have to overcome the looming question from my clients.
Will Social Security even be there for me?
Let's start with how it works
Think of a bathtub full of water.
You, I & your employer all contribute to Social Security through our payroll taxes.
You contribute 6.2% of your payroll to Social Security and so does your employer. (we add water)
This goes into the bathtub to fill up the Trust Fund. (The Water already in the bathtub.)
Retirees and anyone drawing on Social Security benefits are drawing water out of this tub.
But, as long as there are more tax contributions (water) going into the tub, than the Social Security benefits (water) being drawn out of the tub, we're okay.
You can keep a leaky bucket full of water by pouring more water in.
Note: When you hear headlines that Social Security is going to "run out" of money by 20xx, what they mean is that the bath water will be empty.
There is still enough water being added to the tub for everyone to continue to receive Social Security benefits of roughly 80% of what they've been promised.
If you look closely at your Social Security statement, you will see this disclaimer on page two.
Long story short, Yes Social Security will still be around when you retire. But you may take roughly a 20% cut in your benefits.
A pay cut doesn't sound too inviting...
Here's why I don't expect you to take one.
Let's start by looking at two sides of the Social Security coin.
The politicians who vote on Social Security funding.
Those of us either receiving (or expecting to receive) benefits.
Maybe you've noticed a few things about politicians.
They've got a pretty sweet benefits package and:
They like getting re-elected.
Do you think any politician will cast a vote that would reduce the benefits for retirees who are already receiving Social Security benefits?
My guess is no since retirees make up the largest amount of active voters.
Do you think any politician will cast a vote to reduce benefits for people 5-10 years away from retirement?
Maybe. But more than likely what will happen is an elimination of the various "loophole" Social Security strategies first. (which has already been done).
Followed by a possible slight reduction in benefits (which I believe is unlikely).
I believe that anyone who is 5-10 years from retirement needs to pay attention to potential Social Security changes and account for this with more flexible Retirement planning.
But ultimately the bulk of Social Security changes will fall on those 10 years or more from retirement.
I was born in 1981 so I'm in that "younger generation."
(Technically it could make me a millennial but we'll just ignore that...)
The younger generation generally thinks that Social Security won't exist by the time we reach retirement.
We expect to receive NOTHING.
Since it's inception in 1935, Social Security has had OVER 19 Amendments. *
Who taught them how to count?
Each of these amendments has slightly changed the various moving parts of Social Security which has allowed the trust fund (water) to stay full enough to provide current benefits without pay cuts.
In 1983, Congress gradually increased the full retirement age from 65 to age 67, implemented a slight payroll tax increase and implemented a few other changes that we see as normal now and it filled the bathtub water back up for another 30+ years.
With the current projections that we will run out of money in 2037, I'm fully confident that we'll make similar adjustments as the time gets closer to fully fund Social Security for another 30 years.
Let's sum this all up:
We currently have enough "water" in the Social Security bath tub to keep paying as is until around 2037.
With no changes, we could continue paying roughly 80% of current Social Security Benefits.
We have modified Social Security many many times in the past and will likey do so again sometime in the next 5-10 years.
Like we've done in the past, a combination of small "tweaks" to the various Social Security programs will likely be sufficient to shore up Social Security for a number of years to come.
If you are interested in a no cost Social Security review, feel free to schedule a phone call. We're happy to help...
We're a different kind of financial firm than you may be used to.